‘Amazon, Alibaba are overvalued’
NEW YORK: The world’s biggest companies could be hiding the biggest risks. That’s because companies such as Amazon.com Inc and Alibaba Group Holding Ltd are overvalued, according to Robert Naess, a portfolio manager in the Multi Asset team who manages about US$42 billion (RM171.2 billion) in stocks at Nordea Bank AB, Scandinavia’s largest bank.
“I’m a bit worried about the valuation of these very popular companies,” said Naess in Oslo on Friday. “The big stocks have become more expensive. There’s danger of a bubble in them.”
Naess and his partner, Claus Vorm, quantitatively analyse thousands of companies, investing in those with the most stable earnings and avoiding expensive stocks, a strategy which has delivered a 10 per cent return for the Global Stable Equity Fund this year. It has returned 12 per cent on average in the past five years, beating 75 per cent of its peers.
They prefer “boring” stocks, unlike the global behemoth technology companies that have led the global stock rally. Tech stocks sold off at the end of last month, with the single worst day on record for the so-called FANG stocks.
One of those stocks, Amazon, which has risen 55 per cent this year, has a price-to-earnings ratio of 275 for 2017, compared with 18.2 on average for MSCI World Index.
“Long-term, five to 10 years, stocks that are expensively priced, such as Amazon, Tencent and Alibaba, will give a low return,” said Naess. “I’m pretty certain that in the next 10 years, the return on those will be lower than the market.”
The fund holds Apple Inc and Alphabet Inc, which are “reasonably priced”. It has also bought a stake in Merck & Co, Inc and increased in Amgen Inc, CVS Health Corporation and Walgreens Boots Alliance, Inc.